Category Archives: financial regulation

House Roll Call Vote 412 wasn’t one of those votes likely to draw much general media attention, even its title seemed designed to induce yawns: “Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by Bureau of Consumer Financial Protection relating to “Arbitration Agreements.” Representative Mark Amodei (R-NV2) voted in favor of this measure on July 25th, and few noticed, much less commented. It’s a small thing, but indicative of a mindset that favors the Big Banks over the interests of American consumers.

Background

“In May 2016, the CFPB issued a proposed rule prohibiting predispute arbitration agreements in providing consumer financial services products. This rule would prohibit mandatory predispute arbitration agreements in consumer agreements for items such as checking or savings accounts, credit cards, student loans, payday loans, automobile leases, debt management services, some payment processing services, other types of consumer loans, prepaid cards, and consumer debt collection. The rule would also prohibit predispute arbitration agreements in connection with providing a consumer report or credit score to a consumer or referring applicants to creditors to whom requests for credit may be made.” [ABA]

Translation: For “predispute” read Day in Court, as in the rule prevents a financial corporation from requiring arbitration before a person can take his or her case to court as a member of a group of consumers who have been hurt by the financial institution’s action or actions. The Consumer Financial Protection Bureau explained:

“Many consumer financial products like credit cards and bank accounts have contract gotchas that generally prevent consumers from joining together to sue their bank or financial company for wrongdoing. These widely used clauses leave consumers with no choice but to seek relief on their own – usually over small amounts. With this contract gotcha, companies can sidestep the legal system, avoid accountability, and continue to pursue profitable practices that may violate the law and harm countless consumers.” (emphasis added)

And, Representative Amodei supported the legislation to disapprove of this rule which was an attempt to protect consumers from actions like the following:

The poster child of bank malfeasance, Wells Fargo’s — “admitted its employees systematically created millions of sham bank accounts in its customers’ names, and then in many cases fraudulently billed those same customers for fees and services they never agreed to. Executives of the megabank knew this was happening but did nothing. Then, they decided to blame 5,300 “rogue” employees, who were summarily fired. Now, to ward off thousands of lawsuits, the company is hiding behind binding arbitration clauses in its victims’ contracts.” [USNWR]

And, there’s this —

“Military readiness has been negatively affected by unscrupulous payday lenders who prey on military servicemembers and veterans. The victims become overly indebted thanks to exorbitant interest rates and hidden fees they don’t understand, and then find themselves unable to obtain relief thanks to forced-arbitration clauses. Because of this, the Military Coalition, which represents nearly 6 million uniformed service members, veterans and their families, has formally petitioned Congress to ban the clauses.” [USNWR]

It’s hard to imagine siding with unscrupulous bankers against the interests of enlisted personnel who are in the E6 to E9 ranks in which pay runs from $2,486.99 to $4,186.09 for a person with more than eight years service, however Representative Amodei found a way to do it. The problem became such a persistent issue for the military that in 2007 the Department of Defense started enforcing the Military Lending Act to protect its service personnel. However, pay day lenders found loopholes such that they could re-introduce their ‘products’ to members of the military. [MrktPlc] Who would support legislation designed to force members of the Armed Services to accept arbitration before they could have their day in court? Representative Mark Amodei (R-NV2) and his Republican cohorts in the 115th Congress.

What makes this vote particularly noticeable regarding the protection of bankers is that there are ways — at least two — to ‘prevent’ that bete noir of all Republicans, the consumer lawsuit, without pitching the baby out with the bath water.

The first way would be to make all arbitration voluntary. Companies could save time and money, and avoid publicity IF the consumer agrees. If there is no agreement then the case goes to court.

The second possible solution would be to put the arbitration on a “business pays” status. The American Bar Association offers this common sense proposal:

“The CFPB should require any consumer arbitration to be fully business-funded at no cost to the consumer. When a business faces transaction costs of nearly $2,000 per arbitration filed, repeat consumer filings will attract its attention. In addition, the CFPB could consider requiring that any consumer arbitration which results in a favorable consumer award on the merits should be awarded treble damages and attorneys’ fees. This provision would include a sort of “built in” incentivizing provision. The goal of this provision is to encourage organically what we already see occurring, increased settlement of consumer disputes. Still further, the CFPB should require that any consumer arbitration award must result in a written statement of decision, which permits other consumers to know how the arbitrator applied the law to the facts of that case. This will facilitate consumer knowledge of potential corporate overreach (and encourage more recovery), and will also help aid the consumer in arbitrator selection.”

In short, it is not necessary to go full-bore all-out in support of the banksters among us in order to prevent the unscrupulous from skinning the unwary or uninformed, but that’s what Representative Mark Amodei did on July 25, 2017.

Perhaps this may be explained by the fact that as of May 2017 Representative Amodei received $8,000 in donations from commercial banks for this election cycle, another $7,000 from credit unions, and $1,000 from finance and credit companies. Or maybe it relates to the $25,000 he’s collected from the American Bankers Association over his political career? Whatever the motivation, it’s clear that Representative Mark Amodei is placing the interests of the bankers above those of American consumers. This situation could be rectified in 2018.

Representative Mark Amodei (R-NV2) was pleased to vote for the so-called “Choice Act,” which rolls back some of the reforms enacted in the wake of the Wall Street casino debacle and subsequent recession as the Great Wall Street Derivative Monster collapsed like an air dancer in a Nevada wind. The theory behind this ridiculousness is that regulations restrict commerce, and a restriction of commerce diminishes wealth, therefore diminished wealth impacts investment, ergo diminished investment equates to a limit on economic growth. Not. So. Fast.

Yes, regulations restrict “commerce,” but only some kinds of “commerce,” generally the fraudulent variety. I am free to issue shares of stock in my corporation — however, I am not free to issue shares of stock in the Reese River Steamboat Company. Some sharp soul offered shares of this highly dubious company during one of the mining booms, and assuredly some investors were cheated by this obviously fraudulent sale. We have regulations to prevent this. We have laws and related regulations to prevent insider trading, to prevent “blue sky” stocks, and to reduce the possibility investors are cheated by financial products which promise high returns with little or no risk. Sometimes the adage, “If it looks too good to be true, it probably is,” isn’t quite enough to prevent mismanagement of other people’s money.

Recently, Wells Fargo was found guilty of violating regulations and laws relating to the creation of phony accounts, the fine totaled a massive $185 million and some 5,300 individuals were fired. [NYT] The situation was all the more egregious because the bank was ripping off its own customers. $100 million of that fine was the highest penalty the CFPB ever levied against a financial institution. This is precisely the agency the so-called “Choice Act” wants to ham-string.

The “Choice Act” would eliminate the regulation regime which was intended to prevent the collapse of banking institutions. Just for the record, let’s look at the list of US institutions that either disappeared or were acquired during the Great Recession: New Century, American Home Mortgage, Netbank, Bear Stearns, Countrywide Financial, Merrill Lynch, American International Group, Washington Mutual, Lehman Brothers, Wachovia, Sovereign Bank, National City Bank, CommerceBancorp, Downey Savings and Loan, IndyMac Federal Bank, HSBC Finance Corporation, Colonial Bank, Guaranty Bank, First Federal Bank of California, Ambac, MFGlobal, PMI Group, and FGIC.

If we extrapolate the “let the market sort it out” argument to its conclusion — it’s acceptable to allow banking institutions to over-extend themselves to such an extent that they will ultimately collapse; that’s just the market “at work.” Fine, if the impact of such deregulation solely impinges on the banking institutions themselves, but that’s not what happens in the real world. In the real world such supposedly safe havens (money market accounts) were in peril:

“A little over a year ago the collapse of Lehman Brothers sparked heavy redemptions from the dozen or so money market funds that held Lehman debt securities. The hit was particularly hard at The Reserve Fund, a money market fund that had a $785 million position in Lehman commercial paper. Soon The Reserve saw a run on its Primary Fund, spreading to other Reserve funds. Reserve tried to furiously sell its portfolio securities to satisfy redemptions, but this only depressed their values.

Despite its best efforts, The Reserve Primary Fund couldn’t find enough buyers and on Sept. 16 the unthinkable happened. The Primary Fund “broke the buck,” meaning that the net asset value of the fund, $1, fell to $0.97 a share. It was only the second time a money market fund, which are commonly thought of as guaranteed, broke the buck in 30 years.”

Meanwhile in Nevada, unemployment soared to 14+%, the state endured being listed among the states with the highest levels of foreclosures, and it took until 2016 for the state to recover almost all the wealth and jobs lost in the aftermath of the deregulated Wall Street casino debacle. [LVRJ]

Deregulation may sound fine when discussed in theoretical, ethereal, terms, it obviously didn’t work in the real world in which Bear Stearns, Lehman Brothers, WaMu, and IndyMac collapsed, and where the Reserve Primary Fund “broke the buck.”

The questions someone should ask of Representative Amodei, and other “deregulators,” are:

(1) Do you favor a return to the regulatory environment in which investment banks were allowed to over-extend and engage in risk taking far beyond their capacity to remain solvent?

(2) Do you favor a regulatory environment in which those being regulated are allowed permission to “self regulate,” without oversight from governmental agencies and institutions?

The second question is particularly important because it addresses the question of trust in commercial relationships.

The most basic of all commercial relationships is the simple act of buying and selling. I have something to sell, and there is a potential customer for my goods or services. This is another point at which deregulation can easily become part of the problem. If I am selling food, there are self-evident reasons for regulating the conditions under which that food is prepared and served to the general public. Deregulation invites disasters of the public health variety. We trust that the food offered for sale by restaurants and groceries is safe for consumption.

If I am selling financial products does the buyer (consumer) have the expectation that my product is what it purports to be? That it is backed by sufficient funds for ‘redemption?’ That it conforms to the standards of acceptable practices? And, if it doesn’t, are there avenues of redress such that the consumer can be compensated? In short, can the customer be assured that he or she can trust the product?

If I am selling a manufactured product, can the consumer trust that the item was produced in a safe way, that the product will perform as advertised, that the product will not create a hazard in my home or office? There are voices on the fringe of Free Market thought calling for the abolition or at least the restriction of the Consumer Product Safety Commivoicssion, who would love to see the return of Caveat Emptor, but most reasonable people agree that regulations pertaining to product safety are conducive to commerce, NOT restrictive. A vehicle which meets or exceeds safety standards is more likely to be my choice than a vehicle which does not. A vehicle which meets or exceeds fuel consumption standards is more like to be my choice than one which does not. In short, regulatory standards benefit the best products (and their producers) while those who do not meet the standards have a more difficult time at the point of sale. Now, the question becomes — do we want a regulatory environment which benefits the marginal, the inadequate, or perhaps even the corrupt producers?

Unfortunately, the deregulatory voices are answering this question in the affirmative.

Is this really the answer Representative Amodei and his cohorts want to give to constituents in the Second District? In the US? To our customers around the world?

I don’t think anyone in the state of Nevada doesn’t know what happened the last time Wall Street was left unfettered. The Bubble splattered all over the state. The offcast included 167,000 empty houses. [USAToday] Nevada’s unemployment rate soared to 12.8% by December, 2009. By October 2010 the state’s unemployment rate was 14.4%. And now the House of Representatives is on track to vote on H.R. 10, the “Choice Act” to dismantle the financial regulatory reforms enacted in the wake of the Housing Debacle and deregulated banking disaster.

Two procedural votes are on record to move this bill forward — House vote 290, and House vote 291 — and Representative Mark Amodei voted in favor of bringing this bill to a vote by the full House. Watch this space for an update on the vote for passage.

Update: On House vote #299, Representative Mark Amodei (R-NV2) voted along with 232 other Republicans to essentially gut the financial reform regulations enacted in the wake of the Housing Bubble debacle. (HR 10)

Representatives Kihuen, Rosen, and Titus voted against this deregulation bill.

Comment: Be aware of Republican representatives to frame this vote as one against Bank Bailouts and “Too Big to Fail.” In a polite world we’d call this something euphemistic like “south bound product of a north bound bull.” The Dodd Frank Act requires banks to have a plan for unwinding failing banks, and bankers have screamed to the heavens about provisions to allow outside oversight of banking management. More simply, if you approve of the antics of Wells Fargo — then you’ll love the “Choice Act,” a bill which gives banks the “choice” to skewer its customers and investors.

During this something less than merry Month of May the United States Senate is scheduled to take up the Regulatory Accountability Act which will make it all but impossible for our own government to protect citizens (and citizen consumers) from corporate depredation. We have a warning:

“Among its most egregious provisions, the RAA sets an impossibly high burden of proof that agencies would have to meet before finalizing and implementing a new rule, such as a new air quality or food safety standard. The bill also requires agencies to conduct several rounds of cost-benefit analyses that give more weight to the compliance costs to industry than the benefits to Americans. Taken together, these provisions and others in the bill could lead to total gridlock in the agencies charged with protecting the food we eat, the water we drink, and the air we breathe; ensuring that products are safe before they enter the market; and reining in the worst financial market abuses.”

A better label would be the Unaccountability Act of 2017 — in that corporations would be protected from citizens who like drinking clean water and breathing clean air, eating healthy and uncontaminated food, driving safe cars, and being reasonably assured that Wall Street investment interests aren’t pulling a “de-regulation” extravaganza that could make the debacle of 2007-2008 seem mild by comparison.

If you enjoyed the scandals of Enron, the predatory behavior of Wells Fargo, the Great Recession brought on by Wall Street Casino operations — then you’ll love this draft to deregulate the major corporations.

On the other hand if one is appalled by the “Screw Grandma Milly” antics of the Enron crowd, if one isn’t concerned that the bank isn’t surreptitiously opening accounts (and charging fees) like Wells Fargo, or if one isn’t concerned that mortgages might be oversold, and fed into another giant bubble of derivative trading — then a phone call to the Solons of the Senate is required.

As the machinations of the Russians, the squirming of the administration, and the daily deluge of tweets from Dear Leader, suck the air out of the room, beware that major corporate interests are working through the halls of Congress.

This is the time to contact our Senators, Senator Dean Heller (who has made no secret of his affinity for deregulation) and Senator Catherine Cortez-Masto who is more likely to be amenable to the concerns of ordinary citizens. The so-called “Regulatory Accountability” is nothing more than a not-so-stealthy attack on ordinary Americans by extraordinarily powerful corporate interests.

Senator McConnell couldn’t have made himself more clear to the Republican leadership — let’s please have less drama from the White House so we can get along with our agenda. Less tactfully phrased, McConnell and his myrmidons such as Representative Mark Amodei (NV2) and Senator Heller (R-NV) isn’t going to do anything about the dolt in the Oval Office until after they get what they want. They want two things: (1) to return the control of the health insurance market back to the insurance companies; and (2) to dismantle the financial and consumer protections enacted in the Dodd Frank Act, and the Sarbanes Oxley Act. Not sure about this, then please consider the current push for the Choice Act:

“At a time when too many hard-working American families are still recovering from the devastating impact of the 2008 financial crash, deregulating Wall Street’s biggest firms again makes no sense. Yet the Financial CHOICE Act threatens to do exactly that.

It would allow the biggest Wall Street banks to opt-out of significant financial protection rules, while those banks that remain in the regulatory system would be blessed with watered down versions of once-tough protections, like living wills and stress tests. Perhaps most worryingly, the CHOICE Act would cripple two of the most important post-crash reforms: the Financial Stability and Oversight Council (FSOC) and the Consumer Financial Protection Bureau (CFPB).” [the Hill]

Review: The CFPB was the agency which brought to light, and then levied fines against Wells Fargo for egregious violations of their customers’ privacy and financial interests. Little wonder the banks aren’t happy with those “bureaucrats.” Less wonder why the Republicans aren’t going to do anything about the President who had to fire his National Security Adviser — until the Choice Act is safely delivered to his desk.

We should also recall that the Republican version of the healthcare reform act is much less about health insurance reform than it is about bestowing tax cuts for the wealthiest among us, to the tune of close to $765 billion over the next ten years. We can easily conjecture that the GOP will do nothing about the man in the office who fired the US Attorney in the Southern District of New York, and then the emissary from the Department of Justice who warned him about the dangers presented by the presence of General Flynn. At least nothing will be done, until the Republicans can cut Medicaid to the barest of bones:

His (Trump’s) promise would be violated by House GOP bill, as it seeks to freeze Medicaid expansion money for states in 2020 by withhold funding at the enhanced match rate for any new enrollees after that point. Other beneficiaries are at risk with the more long-term transformation that program stands to undergo under the GOP bill. The legislation would overhaul the program—now an unlimited federal match rate—into a per capita cap system, meaning that states would get a fixed amount of funding per enrollee. The Congressional Budget Office, analyzing an initial version of the legislation, predicted out of the 24 million Americans who would lose coverage under the earlier GOP bill compared to current law, 14 million were due to its changes to Medicaid. [TPM]

Given there is no CBO scoring on the current edition, we can’t be certain that States like Nevada which expanded Medicaid enrollment in order to make health care access affordable, won’t be left in the lurch — Congressman Amodei’s tortured logic to the contrary. So, nothing is likely to be done about the executive who fired the Director of the FBI who was supervising the investigation of Russian meddling in our elections (and possible Trump connections to that meddling) until Medicaid cuts are also tucked into the President’s portfolio for a signing ceremony.

When will Republicans address the Leaker-in-Chief’s discussions with the Russian visitors to the White House? Probably not until the budget cuts to the Department of the Interior, the Environmental Protection Agency, Medicare, Health and Human Services, and the Department of Education come to fruition. Do we have a situation in which the following is true? If the Trumpian honeymoon isn’t over, it soon will be.

That sentiment was echoed by a prominent GOP consultant I spoke to who asked not to be named to offer a candid assessment of Trump and congressional Republicans.
“The question for Republicans is whether this is the straw that breaks the camel’s back,” said the source. “Forty percent approval is not the issue; an erratic, rudderless, leaderless White House is.” [CNN]

The camel’s back may not bend until the Republicans have seen their agenda realized, their Randian Dreams made true, and their Austerity Government imposed on the American people. The damage of this administration and the Republicans in Congress who enable and excuse him is only starting to come to fruition.

The Republicans have catch phrases which have been very handy for their purposes for the last forty years, “burdensome regulations,” are among them. Rarely do they want to identify upon whom the burden rests. Often they are fond of calling the regulations “job killing.” Nearly always the “regulations” are amorphous, and highly generalized.

Let’s get specific. Senator Rob Portman will be introducing a bill which, in its present form, would limit the ability of federal agencies to promulgate rules until every last lawsuit against them is completely litigated. In other words, NEVER. So, what nefarious regulations would people like to have eliminated?

How about eliminating the regulations associated with the Clean Water Act? One regulation has already fallen — the one limiting toxic sludge emptied into freshwater. Is this going to make drinking water any safer? Will this encourage the development of tourism based activities in coal country to diversify their economy by adding more hunting and fishing opportunities? Will elimination of these rules make the drinking water in Flint, MI and other American cities safer for children, and adults? Do we really want to go back to the not-so-good old days when the Cuyahoga River caught fire in Cleveland, OH?

Or perhaps people would like rules associated with the Clean Air Act eliminated? What’s wrong with breathing a little smog — other than creating public health issues like an increase in the incidence of asthma? Respiratory diseases? Lung cancer? What’s wrong with creating a country of people walking around with face masks as they do in Beijing?

How about eliminating consumer protection regulations? Gee, what could go wrong, other than a replication of Wells-Fargo’s egregious practice of opening accounts people didn’t know about and then charging fees on those accounts? Other than predatory lenders charging unimaginable rates for pay day loans to working people, and even members of the US Armed Forces? Other than mortgage servicers failing to notify customers who held their mortgages and failing to properly record documents with local governments? Other than obviously dangerous products being available for sale to unwitting customers, customers without the ability to check online to see if products for infants, children, and others are safe and free of deadly defects? Other than allowing financial advisers being able to tell retirees to purchase financial products which benefit the adviser far more than they would benefit the retirees? Other than making it easier for the Wolves on Wall Street to indulge in Casino play with investment funds? Were these the “burdensome” rules of which we wish to be relieved?

It’s interesting, that Republicans are only too pleased to speak of those regulatory burdens in highly generalized terms, but when brought down to cases, they tend to sputter that “No, it’s not Those” regulations of which they speak.

Who is in favor of providing federal funds to schools that allow bullying and discriminatory behaviors in their buildings? Who is in favor of making it more difficult to determine if lending institutions are cheating their customers? Who is in favor of dirty air and filthy streams? Who is in favor of making it more likely that food sold to the public won’t be properly inspected? Let’s guess it’s NOT the average American member of the public at large.

Someone is in favor of removing these, and other obstacles, to free wheeling unrestrained and unregulated corporate practices, and in this Congress they are finding significant support.

Good morning, another day another 24 hours of trumpster fires, lit by the tinder of well worn Republican mythology.

The Economy Works In Reverse. Let’s guess that the whopping increase in defense spending will be covered by an increase in “economic growth.” I doubt very seriously that my utility company would be much impressed by my assertion that increases in my power bill will be paid for by my getting up an hour and a half earlier every morning. The argument would go “because I get up earlier I will be more productive, and if I am more productive then my earnings will increase. If my earnings increase then I will have more money to spend, and therefore my bills will ‘pay themselves.'” Gee, perhaps if I aroused myself two hours earlier I could trade my vehicle in for a Cadillac CTS-V? Somehow, I don’t think my banker will be sufficiently enamored of my presentation to hand over the money.

There’s another facet of the administration’s fantasy economy which we need to discuss, at least two ways in which while waving its firearms it shoots itself in the foot. Round one into the metatarsal — anti-immigration rhetoric and action. Before theorizing about economic growth, the GOP might want to look at economic activity in our major urban centers, which depend in no small part on their immigrant communities.

Round two into the navicular bone comes compliments of heavy budget cuts. For the millionth time in this blog, there’s a formula for the gross domestic product. Once more C+I+G + (Ex-IM) = GDP. That G stands for government spending, and not just defense spending. Want to expand the consumer economy? Then remember that every dollar spent on the SNAP program almost doubles in economic activity.

Round three into the phalanges: Seek to limit increases in the minimum wage. Evidently it has not occurred to GOP economists that people do not spend money they do not have. They can accumulate debt (which Wall Street is only too happy to securitize) up to a point, but the point is quickly reached. Delinquency happens, leading to defaults, leading to the unraveling of all those beautifully packaged tranches of securities. We know what happened last time.

Round four into the cuboid, continue the progress of income inequality, the trends of which promote the accumulation of wealth into fewer hands, creating a surplus to be used not for corporate promotion and expansion but for the collection and trading of risk diversion securities or for corporate buy-backs which do NOT generate economic growth in the overall economy but bolster the financial sector. Have I been railing about Financialism before? Constantly?

Four shots into the foot and we’re not walking, much less running, anywhere towards overall economic prosperity. It’s the return of the old, stale, Trickle Down Supply Side Hoax nurtured and pampered by right wing think tanks and GOP orthodoxy.

And now, we should return to a discussion of why we need an independent commission to investigate the political and economic ties of the Trump-Bannon regime to the Russian government. We might also want to avoid the trap of calling for a special prosecutor, which would only have the authority to investigate outright crimes, when what we need immediately is an investigation into the possibly profound security risks in the executive branch. But that’s a discussion for another post.